Big win for small business on effects test

The small business lobby group still can't quite believe what's just happened. "Well f--- me," was the reaction from Peter Strong, chief executive of the Council of Small Business of Australia, as cabinet on Wednesday backed an effects test for small business.

The campaign for an effects test first started back in 1977 and finally gathered momentum under the advocacy of former small business minister Bruce Billson.

It's no panacea to all problems but the effects test will allow legal redress for small businesses when a big business misuses market power with the purpose or likely effect of substantially lessening competition.

There is a huge power imbalance between small and big businesses and it has become almost impossible for the Australian Competition and Consumer Commission to protect small businesses from abuse.

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The current wording of section 46 of the Competition and Consumer Act prohibits a corporation with substantial market power from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor.

The devil is in the detail of the term "taking advantage".

As Alan Fels, former head of the commission, points out there have been cases where the Federal Court has found "blatant" anti-competitive behaviour by big businesses is lawful because there was no "taking advantage".

Cabinet's decision is a back flip after previously rejecting the effects test when Tony Abbott was prime minister.

But it's a show of support for Australia's 2 million small businesses, which are Australia's biggest employer but are too often ignored by government.

By approving the effects test the government has stood up for small business. Sources say Small Business Minister and Assistant Treasurer Kelly O'Dwyer advocated strongly in the cabinet room for the test to be implemented.

And nobody appears more surprised than small business owners and advocates themselves.